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BT is under investigation by the European Commission for receiving unfair government assistance.

Optical networking company Vtesse made the complaint to the European Commission. It alleges that the business rates which BT pays for its local loop network are too low.

Aidan Paul, chief exec of Vtesse, told The Register: "BT is taxed at a disproportionately favourable rate and that rate is set in a different way to everyone else's. Any form of differential taxing is illegal: it's state aid. We will be pushing for the Commission to make full recovery of this money which we estimate to be £12bn since 1995."

Paul claims that the rates which local operators pay the government for network infrastructure are based on rental value. But BT's rates are calculated differently and are substantially less than those paid by other operators. He confirmed that the company made a complaint to the EC earlier this year.

A spokesman for BT said: "We've received no notification from either the government or the Commission so this is something of a surprise. If there is an inquiry of course we will co-operate fully but as far as we are concerned the agreement we reached with the Valuation Office was completely above board."

The Office of the Deputy Prime Minister, which is responsible for business rates, confirmed it had been approached by European officials and was considering its response, according to Reuters.

Vtesse previously, and unsuccessfully, accused BT of predatory pricing - offering customers cheaper deals than those it advertises. The company complained to Ofcom but the case was closed in November 2003. ®